The Supreme Court dismissed the revenue’s appeals and agreed with the Karnataka High Court that leasing a building as a hostel for students/working professionals — where occupants stay for months at a time — qualified as “renting of residential dwelling for use as residence” and therefore fell within Entry 13 of Notification No. 9/2017 (the GST exemption) for the period in question. The court clarified the legal test and rejected a narrow “lessee-must-use-it-as-residence” reading urged by the revenue. (Judgment and related documents on file.)
Facts of the case
A group of co-owners owned a four-storey building in Bengaluru with 42 rooms.
On 21 June 2019 they executed a lease with M/s DTwelve Spaces Pvt. Ltd. The lessee operated the premises as a hostel/PG, sub-letting to students and working women for long stays (typically 3–12 months, average ~8 months).
The co-owners sought an advance ruling on whether rent received by them was exempt from IGST under Entry 13 of Notification No. 9/2017 (exemption for “renting of residential dwelling for use as residence”).
The Authority for Advance Ruling (AAR), and later the Appellate Authority for Advance Ruling (AAAR), denied the exemption: they held the lease to the company (the lessee) was not the same as renting to an individual who uses it as a residence, and described the hostel as more like “social/temporary accommodation” than a residential dwelling.
The co-owners challenged the AAAR order in the Karnataka High Court, which allowed their writ petition and held the leasing qualified for the exemption. The revenue appealed to the Supreme Court.
Issue Involved-
Does leasing a residential property to an intermediary company (lessee) which sub-lets it as hostel accommodation to students/working professionals (for multi-month stays) qualify as “services by way of renting of residential dwelling for use as residence” under Entry 13 of Notification No. 9/2017 — i.e., was the owner (lessor) entitled to exemption from IGST for the rent received during the relevant period?
What is a “residential dwelling” under the notification?
Is it required that the recipient of the first lease (lessee) must personally use the property as a residence for the exemption to apply? Or is it sufficient that the property is ultimately used as a residence by sub-lessees (students, working professionals)?
Arguments for the revenue (appellant)
The exemption must be read strictly and supply-by-supply. All three limbs must be conjunctively satisfied: (i) there must be a renting service, (ii) it must be a residential dwelling, and (iii) the residential dwelling must be used as a residence by the recipient of that particular supply (i.e., the lessee).
Here the first supply (owner → DTwelve) was to a registered commercial company that runs an aggregator business and re-lets rooms. Because the lessee did not itself use the premises as residence, the revenue argued the first supply did not meet the “use as residence” requirement and hence no exemption should apply.
The revenue also relied on the lease clauses (right to sub-lease) and on the character of the building (42 rooms with attached washrooms) to argue the premises resembled an establishment akin to lodging / commercial accommodation excluded from the exemption.
Finally, the revenue pointed to legal materials (education guide under old service tax law and strict construction of exemptions) to support its narrower interpretation.
Arguments for the co-owners (respondent)
The co-owners argued the building is residential in character and was used as a place of residence by students and working women for long durations (average ~8 months). That use satisfies Entry 13.
The exemption targets activity (renting residential dwelling for residential use), not the identity of the recipient. If the ultimate/actual use of the premises is residential, the exemption must apply — even if the immediate lessee is an aggregator company that sub-lets to individuals.
The co-owners also relied on precedents (Supreme Court and High Court decisions) and dictionary/ordinary meaning of “residence” and “dwelling”: hostels used for long stay are residential in nature and different from short-stay hotels/lodges.
Supreme Court Order-
After reviewing the facts, earlier case law and principles of statutory interpretation, the Court:
Agreed with the High Court that the subject property is a “residential dwelling” in ordinary parlance (the municipal records also showed the plot as residential).
Rejected the revenue’s restrictive approach that the lessee must itself use the premises as a residence for the exemption to apply. The Court held the exemption is activity-specific (renting residential dwelling for use as residence) and is not conditioned on the lessee’s personal use. What matters is the ultimate use — if the premises are occupied as a residence (by sub-lessees), the renting activity qualifies.
Noted the policy and purposive approach: a narrow reading would defeat the legislative goal of exempting residential use from GST and could cause the tax to ultimately fall on residents (students/working professionals) through higher prices.
Referred to precedent showing hostels and student accommodation can be residential in nature and are distinguishable from hotels/temporary lodging.
Observed that Entry 13 was amended w.e.f. 18-Jul-2022 to exclude rental to a registered person, but that amendment cannot be given retrospective effect to deny exemption for the earlier period. The Court therefore upheld the High Court’s order for the relevant period (2019–2022).
The Supreme Court dismissed the revenue’s appeals and left undisturbed the High Court’s finding that the owners were entitled to the exemption for the period in issue. The subsequent legislative amendment (post-2019 period) operates prospectively and does not alter the outcome for the earlier years.
GST Case Law The State of Karnataka Versus Taghar Vasudeva Ambrish
Citation-2025 TAXONATION 3011 (SUPREME COURT)(Click here to read full case law)
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